Fair Prices, fiscal adjustment, multilateral credit and soybean dollar, mainstays of the relative optimism of the Economy about a drop in inflation

Gabriel Rubinstein, Secretary of Economic Programming
Gabriel Rubinstein, Secretary of Economic Programming

“It will take us a little time, but today we are working to achieve macroeconomic order with a primary fiscal surplus and a unified exchange market,” the secretary of Economic Programming wrote in a thread on the social network Twitter in the last few hours. gabriel rubinsteinthe member of the economic team in charge of giving macro consistency to the minister’s management Sergio Massa.

“Fair Prices is a useful tool to try to reach inflation of 4% in the coming months and towards 3% by the end of next year,” Rubinstein also said, somewhat less ambitious than his boss, whose ambition is that as of March the monthly inflation data begins with the number three (3).

The official assured that the rate of increase in prices “is falling” and provided numbers to underpin his optimism: “in October core inflation was 5.5% and wholesale 4.8%, when the general index was 6, 3%, and for this month (and December) the downward trend continues”.

It should also be taken into account that on Thursday the 15th the inflation data for November will be known; in Economy they are sure that for the first time in 5 months it will give below 6%, although the consultants are not so sure that this is the case.

Rubinstein also ratified the “very important” objective of accumulating reserves. “That is why the soybean dollar in December, loans from the IDB and others; as well as better control of imports through the SIRA system”, he said, for the foreign trade administration scheme that generates so many complaints from the private sector.

The current optimism of the Secretary of Economic Programming has what to expect

The vice minister’s optimism contrasts with what he himself wrote last May, when he considered the agreement with the IMF “a light anchor” and insufficient to induce “a general change in expectations” and noted that “the inertial dynamics of prices, the increases expected tariffs and the official dollar, plus all the political and social noise, do not help”. Therefore, he envisioned two possibilities: that the goals with the IMF would not be met and that there would be a sharp drop in the real demand for money, in which case “‘perfect storm’ conditions could be configured for a hyperinflationary outbreak.”

Indeed, Rubinstein’s current optimism has something to stand for. First, a notable fiscal consolidation. As Infobae already pointed outsince Massa’s arrival at the Economy Ministry, the rate of State expenditures fell 23% compared to the previous year, with which the government is moving towards meeting the goal of closing the year with a primary fiscal deficit of no more than 2.5% of GDP.

Massa and team, face to face with IMF technicians and officials
Massa and team, face to face with IMF technicians and officials

On the other hand, the series of credits obtained (from the IDB, the CAF, the World Bank) plus the restructuring of the debt with the Paris Club and the approval of the third revision of the agreement with the IMF, which before the end of year will disburse 4,500 million SDRs (about USD 6,000 million), they will fatten the reserves of the Central Bank. And although the “soybean dollar 2” is generating fewer liquidations than its September version, the government is sure that by the end of the year it will meet the goal of the agreement with the IMF that until recently seemed more difficult: the increase of USD 5,000 million (renegotiated from the most ambitious USD 5,800 million of the original letter) of the “net reserves” of the entity he presides over Miguel Pesce.

As regards Fair Prices, the government is betting on the commitment of producing companies, supermarket chains and more recently wholesale chains so as not to retouch the prices of just over 1,800 mass consumption goods until the end of February. For now, he has not managed to incorporate “local” businesses, but he is confident that as the weeks go by the growing price gap between products that are and are not will induce a greater output of goods with the official sign and act as centripetal force in favor of the program.

The biggest weakness continues to be monetary inertia. It was too long that the ex-minister, Martin Guzman, he spent his time celebrating as “positive net financing” what was strictly speaking a vertiginous increase in public debt, forcing the Central Bank to act like a kind of backwards firefighter; instead of putting out the fire with water, it dedicated itself to withdrawing liquidity so that its excess would not lead to a hyperinflationary situation. A risk that, as even Rubinstein himself admitted -in an inconvenient sincerity for a public official- has not yet been fully overcome.

Measured as a whole, the “macro adjustment” that Argentina needs is not that great. But there is a great imbalance in the public sector, almost entirely financed by the private sector, which reduced its levels of consumption and investment and on which the inflationary tax falls

In favor of official optimism, the fact that the magnitude of the “macro adjustment” that Argentina needs is not so great also plays a role. A recent paper from the Ieral of the Mediterranean Foundation, by the economist Gustavo Reyes, estimates it at barely 0.3% of GDP, notably less than the 5% it had been five years ago. The problem, Reyes stressed, is that this small fraction comes from a very large deficit in the public sector and an almost as large surplus in the private sector, which finances the State’s imbalance through the “inflation tax” and by reducing its levels of consumption and investment.

Is it possible to adjust public spending that does not lead to a recession? the document asks. And he answers yes, that it was what happened in two “successful” adjustments since the return of democracy: the first stage of the Austral Plan and the initial phase of Convertibility, in which the reduction in public spending was more than offset by higher consumer spending and private sector investment, thus avoiding a recession.

A cracked political scene does not contribute to building trust or credibility.  The judicial sentence of the vice president and the reaction of Kirchherism further complicates things
A cracked political scene does not contribute to building trust or credibility. The judicial sentence of the vice president and the reaction of Kirchherism further complicates things

But for that, of course, it is necessary to generate credibility and trust, something tricky in such a cracked political scenario and in which the recent judicial decision to condemn the vice president Cristina Kirchner to six years in prison for corruption and the predictable reaction of Kirchnerism and its satellites make it practically impossible to generate those intangibles.

In its monetary manifestation, the challenge continues to be to clear up the enormous uncertainty and prevent a huge mass of pesos from becoming a tsunami that will sweep away fiscal consolidation efforts and revive temporarily contained devaluation and inflationary pressures.

During the week, the Economy will be able to test the ground, with the expiration of $400,000 million of Treasury debt. Just one season of a challenge that will have dozens more over the next few months. Not in vain the former Vice Minister of Economy Emanuel Alvarez Agis (Rubinstein’s predecessor in the economic management of today’s Buenos Aires governor, Axel Kicillof)proposed a “Moncloa Pact” on the debt in pesos to commit the opposition to a kind of “anti-default insurance” and make it easier for the government to refinance maturities and overcome the resistance of the private creditors of that debt (basically , the financial system) to accept an official promise of payment that goes beyond August 2023, when the PASO will take place, the first certain indication of the political color and the most likely faces of the next government.

In a recent report, the consultancy Eco Go sized up the issue, specifying that the sum of the debt in pesos of the Treasury with the Market ($6 trillion) and the remunerated liabilities of the Central Bank ($8.6 trillion), which it calls “relevant debt in pesos”, is $14.6 trillion, equivalent to USD 45,000 million if measured against the “blue” dollar and USD 85,000 million according to the official exchange rate. This is, between one and almost two times the Argentine debt with the IMF, in less than a year.

“The ratio between the total debt in pesos (BCRA + Treasury net of intra-public sector debt) to the market and the free pesos of the economy amounts to 1.6 times, this contrasts with a ratio of 0.5 times that had been the end of 2015 and one of the 5 times that there was in April 1989 before the country went hyper,” said the consultant. And she concluded: “The deterioration is going very fast, but let’s not exaggerate.”

For now at least the “let’s not exaggerate” prevails.

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